Concentrated Liquidity
Frequently Asked Questions (FAQ) about concentrated liquidity
What is concentrated liquidity?
Concentrated liquidity is liquidity that has a set price range. This allows users to "concentrate" their liquidity into ranges for more capital efficiency and fees. Unlike most liquidity platforms, Gamma focuses on concentrated liquidity.
Why does concentrated liquidity require active management?
Concentrated liquidity requires a liquidity provider to constantly monitor and adjust their liquidity ranges and depths. Active management of liquidity positions is crucial to success.
What are the benefits and risks associated with concentrated liquidity?
By concentrating liquidity into specific ranges, the liquidity provider can earn more fees. Traders experience less slippage on trades in concentrated liquidity markets.
Concentrated liquidity can also amplify the effects of price changes, called impermanent loss. Concentrated liquidity requires users to be extremely vigilant or rely upon a concentrated liquidity manager for providing liquidity.
Are concentrated liquidity pools 50-50?
Rarely. Concentrated liquidity pools vary in their asset ratios. The asset pair can swing from 100-0 to 0-100, sometimes aggressively. Users must understand that before entering Gamma's vaults, they must deposit at the current pair ratio. Users will also withdraw at the current pair ratios.
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